Normally, property improvements that require construction, or demolishing a damaged home and rebuilding it, will result in a full reassessment and a higher property tax bill. If, however, your property was substantially damaged by the recent Northern California wildfires and qualifies for disaster relief, you are likely to retain your Proposition 13 protections whether you decide to repair or rebuild.
What is "substantially damaged"?
A property is considered sufficiently damaged to receive a property tax exemption if the loss estimate is at least $10,000. With this level of damage, you should qualify under California Revenue and Taxation Code (R&TC) Section 170 to have your property reassessed to reflect its damaged state and receive a temporary reduction in property taxes and a deferral of your property tax payments.
Renovations and improvements
If you repair or rebuild substantially the same house ("in a like or similar manner"), you pay a lower property tax rate during your reconstruction. After construction is complete, your previous property tax rate will be restored and you will go back to paying the same property taxes as you did before the damage occurred. This benefit applies with few exceptions:
- If only part of your property was damaged or destroyed, your property taxes will be temporarily reduced only for that portion of the property.
- If you improve on the property as part of your rebuild, the assessor will add the full market value of your improvements (i.e., new square footage, additional bathrooms, granny flat, etc.) to your previous base year value.
Owners of manufactured homes on the property tax roll are also entitled to tax relief – if you live in a manufactured home that was totally destroyed in the fires, you may replace it with a comparable unit without having to pay additional property taxes, license and registration fees.
What about my mortgage?
Check with your mortgage lender – some may also be willing to provide you with a 90-day postponement.
These property tax benefits are also available if you choose to relocate to an entirely new property, but restrictions apply as to location. See our next post on taking your property tax rate with you to a new area.